UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under ss.240.14a-12
FREQUENCY ELECTRONICS, INC.
---------------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO OF FREQUENCY ELECTRONICS]
FREQUENCY ELECTRONICS, INC.
55 Charles Lindbergh Boulevard
Mitchel Field, New York 11553
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
September 27, 2006
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Frequency
Electronics, Inc. will be held at the offices of the Company, 55 Charles
Lindbergh Boulevard, Mitchel Field, New York, 11553, on the 27th day of
September 2006, at 10:00 A.M., Eastern Daylight Savings Time, for the following
purposes:
1. To elect six (6) directors to serve until the next Annual Meeting of
Stockholders and until their respective successors shall have been
elected and qualified;
2. To consider and act upon ratifying the appointment of Holtz Rubenstein
Reminick LLP as independent auditors for the fiscal year commencing
May 1, 2006; and
3. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Only stockholders of record as of the close of business on August 25, 2006,
the date fixed by the Board of Directors as the record date for the meeting, are
entitled to notice of, and to vote at, the meeting.
By order of the Board of Directors
/s/ Harry Newman
----------------
HARRY NEWMAN
Secretary
Mitchel Field, New York
August 25, 2006
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. YOUR VOTE
IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE MARK, SIGN AND DATE
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE TO ENSURE
THAT YOUR SHARES WILL BE REPRESENTED. YOU MAY NEVERTHELESS VOTE IN PERSON IF YOU
ATTEND THE MEETING.
FREQUENCY ELECTRONICS, INC.
55 Charles Lindbergh Boulevard
Mitchel Field, New York 11553
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
September 27, 2006
The accompanying Proxy is solicited by and on behalf of the Board of
Directors (the "Board") of Frequency Electronics, Inc., a Delaware corporation
(hereinafter called the "Company"), for use only at the Annual Meeting of
Stockholders to be held at the office of the Company, 55 Charles Lindbergh
Boulevard, Mitchel Field, New York 11553, on the 27th day of September 2006, at
10:00 A.M., Eastern Daylight Savings Time, or any adjournment or adjournments
thereof. The Company will mail this Proxy Statement and the accompanying Proxy
on or about August 25, 2006. Only stockholders of record as of the close of
business on August 25, 2006 are entitled to notice of, and to vote at, the
meeting.
The Board may use the services of the Company's directors, officers and
other regular employees to solicit proxies personally or by telephone and may
request brokers, fiduciaries, custodians and nominees to send proxies, proxy
statements and other material to their principals and reimburse them for their
out-of-pocket expenses in so doing. The cost of solicitation of proxies, which
it is estimated will not exceed $7,500, will be borne by the Company. Each proxy
executed and returned by a stockholder may be revoked at any time thereafter by
filing a later dated proxy or by appearing at the meeting and voting in person.
Attendance at the meeting will not, in itself, constitute revocation of a proxy.
Dissenters are not entitled by law to appraisal rights.
VOTING SECURITIES
The Board has fixed the close of business on August 25, 2006, as the record
date for determination of stockholders entitled to notice of, and to vote at,
the meeting. On August 25, 2006, the Company had outstanding 8,584,625 shares of
common stock, $1.00 par value per share ("Common Stock") (excluding 579,315
treasury shares), each of which entitled the holder to one vote. No shares of
preferred stock were outstanding as of such date. A majority of the outstanding
shares of Common Stock, represented in person or by proxy, constitutes a quorum.
A stockholder who abstains from voting on any or all proposals will be
included in the number of stockholders present at the meeting for the purpose of
determining the presence of a quorum. Broker non-votes also will be counted for
the purpose of determining the presence of a quorum.
Brokers who do not receive a stockholder's instructions are entitled to
vote on the election of directors and the ratification of the independent
auditors. Broker non-votes and stockholder abstentions will have no effect on
the outcome of the election of directors.
It is expected that the following business will be considered at the
meeting and action will be taken thereon.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the annual meeting, stockholders will be asked to elect six (6)
directors ("Director(s)") to the Board to hold office until the next annual
meeting of stockholders and until their respective successors are elected and
qualified. Cumulative voting is not permitted. The accompanying Proxy will be
voted for the election of all six of the members of the Board, each of whose
principal occupations are set forth in the following table, if no direction to
the contrary is given. In the event that any such nominee is unable or declines
to serve, the Proxy may be voted for the election of another person in his
place. The Board knows of no reason to anticipate that this will occur.
Nominees for Election as Directors
The director nominees are as follows:
Year First
Elected
Name Principal Occupation Age Director
- ---- -------------------- --- --------
Joseph P. Franklin Chairman of the Board 72 1990
(Major General, of Directors
U.S. Army - Ret.)
Martin B. Bloch President, Chief 70 1961
Executive Officer
and a Director
Joel Girsky President, Jaco 67 1986
Electronics, Inc., and a
Director
E. Donald Shapiro Dean Emeritus, 74 1998
New York University School
of Law and a Director
S. Robert Foley, Jr. Vice President for Laboratory 78 1999
(Admiral, U.S. Management, University of
Navy - Ret.) California and a Director
Richard Schwartz Trustee, Cooper Union and 70 2004
a Director
All directors hold office for a one-year period or until their successors
are elected and qualified.
The Company's Board of Directors has determined that Messrs. Foley, Girsky,
Shapiro and Schwartz are "independent," as defined in the listing standards of
the NASDAQ Stock Market ("NASDAQ"). The composition of the Board, consisting of
two (2) officers of the Company (Messrs. Bloch and Franklin) and the four (4)
independent directors, is in full compliance with the listing requirements of
the NASDAQ as required under corporate governance rules promulgated by the
Securities and Exchange Commission ("SEC").
Directors' Fees
Directors who are not officers of the Company receive an honorarium of
$10,000 and $2,500 for attendance at each Board meeting or meeting of a Board
committee of which he is a member ($1,500 if such attendance is telephonic). In
addition, the chairman of the Audit Committee receives a stipend of $10,000.
Company officers do not receive additional compensation for attendance at Board
meetings or committee meetings.
Business Experience of Directors
MARTIN B. BLOCH, age 70, has been a Director of the Company and of its
predecessor since 1961. He has served continuously since 1961 as the Company's
President and, except for December 1993 through April 1999, as its Chief
Executive Officer. Previously, he served as chief electronics engineer of the
Electronics Division of Bulova Watch Company.
JOSEPH P. FRANKLIN, age 72, has served as a Director of the Company since
March 1990. In December 1993, he was elected Chairman of the Board of Directors
and, from December 1993 through April 1999, served as Chief Executive Officer of
the Company. From August 1987 to November 1993, he was the chief executive
officer of Franklin S.A., a Spanish business consulting company located in
Madrid, Spain, specializing in joint ventures, and was a director of several
prominent Spanish companies. General Franklin was a Major General in the United
States Army until he retired in July 1987.
JOEL GIRSKY, age 67, has served as a Director of the Company since October
1986. He is the president and a director of Jaco Electronics, Inc., which is in
the business of distributing electronics components, and has served in such a
capacity for over thirty years. Mr. Girsky is the Chairman of the Company's
Compensation Committee.
E. DONALD SHAPIRO, age 74, has been The Joseph Solomon Distinguished
Professor of Law, New York University School of Law, since 1983 and Dean
Emeritus since 2000 and was previously Dean/Professor of Law from 1973 to 1983.
He is a director of Loral Space & Communications, Ltd., Vasomedical, Inc., nStor
Technologies, Inc. and Kramont Realty Trust. Mr. Shapiro became a member of the
Board of Directors in 1998 and serves as Chairman of the Company's Audit
Committee.
S. ROBERT FOLEY, Jr., age 78, is Vice President for Laboratory Management,
University of California. He served as Vice President of Raytheon International,
Inc. and President of Raytheon Japan from 1995 to 1998. Admiral Foley served in
the United States Navy for 35 years, including the position of
Commander-In-Chief of the Pacific Fleet. Admiral Foley is also a director of KEI
Pearson. Admiral Foley became a member of the Board of Directors in 1999.
RICHARD SCHWARTZ, age 70, is a trustee and chairman of the Finance
Committee of Cooper Union in New York City. Prior to his retirement in 2000, Mr.
Schwartz was Chief Executive Officer and Chairman of ATK. He served in senior
executive positions at ATK and predecessor companies since 1990. Prior to that
Mr. Schwartz had been president of the Rocketdyne division of Rockwell
International, a company he first joined in 1957. Mr. Schwartz also serves on
the board of directors of Astronautics Corporation of America.
Vote Required
Assuming the presence of a quorum at the Annual Meeting, the affirmative
vote of a plurality of the votes cast by holders of shares of common stock
represented at the meeting and entitled to vote is required for the election of
directors.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 1 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
PROPOSAL NO. 2
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of the Audit Committee, has
appointed the firm of Holtz Rubenstein Reminick LLP, independent accountants, to
be the Company's external auditors for the fiscal year commencing May 1, 2006,
and recommends to stockholders that they vote for ratification of that
appointment.
It is anticipated that a representative of Holtz Rubenstein Reminick LLP
will be present at the meeting. Such representative will be given the
opportunity to make a statement and will be available to respond to appropriate
questions.
AUDIT AND NON-AUDIT FEES
The following table presents the aggregate fees billed for professional
services rendered by Holtz Rubenstein Reminick LLP in fiscal years 2006 and
2005. Other than as set forth below, no professional services were rendered or
fees billed by Holtz Rubenstein Reminick LLP during fiscal years 2006 and 2005.
Service 2006 2005
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Audit Fees (1) $203,582 $191,225
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Audit-Related Fees (2) 56,301 53,374
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Tax Fees (3) 34,655 10,463
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All Other Fees (4) - -
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TOTAL $294,538 $255,062
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------------------------
(1) Audit fees consist of professional services rendered for the audit of
the Company's annual financial statements and the reviews of the
quarterly financial statements and issuance of consents and assistance
with and review of documents filed with the SEC.
(2) Other audit-related services provided by Holtz Rubenstein Reminick LLP
include the annual audit of the Company's employee benefit plans as
well as accounting consultations regarding significant transactions
during the fiscal year.
(3) Tax fees consist of fees for services rendered to the Company for tax
compliance, tax planning and advice.
(4) No other services were performed by Holtz Rubenstein Reminick LLP in
connection with financial information systems design and
implementation or otherwise.
Pre-Approved Services
Prior to engaging Holtz Rubenstein Reminick LLP to render the above
services, and pursuant to its charter, the Audit Committee approved the
engagement for each of the services and determined that the provision of such
services by the external auditor was compatible with the maintenance of Holtz
Rubenstein Reminick LLP's independence in the conduct of its auditing services.
The procedures used by the Audit Committee for the pre-approval of all
audit and permissible non-audit services provided by the independent auditors
are described below.
Before engagement of the independent auditors for the next year's audit,
the independent auditors will submit a detailed description of services expected
to be rendered during that year within each of four categories of services to
the Audit Committee for approval.
Audit Services include audit work performed on the Company's financial
statements, as well as work that generally only the independent auditors can
reasonably be expected to provide, including statutory audits, comfort letters,
consents and assistance with and review of documents filed with the SEC.
Audit-Related Services are for assurance and related services that are
traditionally performed by the independent auditors, including due diligence
related to mergers and acquisitions, employee benefit plan audits, and special
procedures required to meet certain regulatory requirements and discussions
surrounding the proper application of financial accounting and/or reporting
standards.
Tax Services include all services, except those services specifically
related to the audit of the financial statements, performed by the independent
auditors' tax personnel, including tax analysis; assisting with coordination of
execution of tax related activities, primarily in the area of corporate
development; supporting other tax related regulatory requirements; and tax
compliance and reporting.
Other Services are those associated with services not captured in the other
categories. The Company generally does not request such services from the
independent auditors.
Prior to engagement, the Audit Committee pre-approves independent auditor
services within each category. The fees are budgeted and the Audit Committee
requires the independent auditors to report actual fees versus the budget
periodically throughout the year by category of service. During the year,
circumstances may arise when it may become necessary to engage the independent
auditors for additional services not contemplated in the original pre-approval
categories. In those instances, the Audit Committee requires specific
pre-approval before engaging the independent auditors.
The Audit Committee may delegate pre-approval authority to one or more of
its members. The member(s) to whom such authority is delegated must report, for
informational purposes only, any pre-approval decisions to the Audit Committee
at its next scheduled meeting.
Vote Required
The affirmative vote of a majority of the shares of common stock
represented at the meeting and entitled to vote is required for the ratification
of Holtz Rubenstein Reminick LLP as the Company's independent auditors for the
2007 fiscal year.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
PROPOSAL NO. 3
OTHER BUSINESS
As of the date of this Proxy Statement, the only business which the Board
intends to present and knows that others will present at the meeting are
hereinabove set forth. If any other matter or matters are properly brought
before the meeting or any adjournments thereof, it is the intention of the
persons named in the accompanying Proxy to vote the Proxy on such matters in
accordance with their judgment.
PROPOSALS OF STOCKHOLDERS
In accordance with the rules promulgated by the SEC, any stockholder who
wishes to submit a proposal for inclusion in the proxy material to be
distributed by the Company in connection with the 2007 Annual Meeting of
Stockholders must submit such proposal to the Company no later than April 27,
2007.
Assuming that the Company's 2007 Annual Meeting of Stockholders is held on
schedule, the Company must receive notice of a stockholder's intention to
introduce a nomination or other item of business at that meeting by July 11,
2007. If the Company does not receive notice by that date, or if the Company
meets certain other requirements of the SEC rules, the persons named as proxies
in the proxy materials relating to that meeting will use their discretion in
voting the proxies when these matters are raised at the meeting.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of August 25, 2006, information
concerning the beneficial ownership of the Company's Common Stock by (i) each
person who is known by the Company to own beneficially more than 5% of the
Company's Common Stock, (ii) each of the Company's directors and nominees for
director, (iii) the Company's chief executive officer and the Company's four
most highly compensated other executive officers who were serving as executive
officers at the end of the last completed fiscal year, and (iv) all directors
and officers of the Company as a group:
Name and Address of Beneficial Holder Number of Shares Percent of Class (1)
- ------------------------------------- ---------------- -------------------
DePrince Race & Zollo, Inc. (2)
201 S. Orange Ave.
Orlando, FL 32801 1,271,900 14.8%
Dimensional Fund Advisors, Inc. (3)
1299 Ocean Ave.
Santa Monica, CA 90401 540,733 6.3%
Name and Address of Beneficial Holder Number of Shares Percent of Class (1)
- ------------------------------------- ---------------- -------------------
Inverness Counsel, Inc. (4)
545 Madison Ave.
New York, NY 10022 514,386 6.0%
AWM Investment Company, Inc. (5)
153 East 53rd St
New York, NY 10022 507,200 5.9%
Frequency Electronics, Inc.,
Employee Stock Ownership Plan (6)
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553 556,785 6.5%
Martin B. Bloch (7)(10)
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553 718,280 8.4%
Joseph P. Franklin (8)(10)
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553 100,336 1.2%
Joel Girsky (11)
c/o Jaco Electronics, Inc.
145 Oser Avenue
Hauppauge, NY 11788 55,000 *
E. Donald Shapiro (11)
10040 E. Happy Valley Road
Scottsdale, AZ 85255 33,600 *
S. Robert Foley (11)
One Lakeside Dr.
Oakland, CA 94612 30,000 *
Richard Schwartz (11)
4427 Golf Course Dr.
Westlake Village, CA 91362 7,500 *
Markus Hechler (9)(10)
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553 120,288 1.4%
Michel Gillard (10)
Mont Saint-Martin 58
B-4000 Liege, Belgium 213,994 2.5%
Oleandro Mancini (10)
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553 40,437 *
Steven Strang (10)
1515 South Manchester Blvd.
Anaheim, CA 92802 18,331 *
All executive officers
and directors as a group
(16 persons) (9)(10) 1,606,049 18.7%
*designates less than one (1%) percent.
- --------------------------------
Notes:
(1) Based on 8,584,625 shares outstanding as of August 25, 2006.
(2) As reported in a Form 13F for the quarter ended June 30, 2006, filed by
DePrince Race & Zollo, Inc. DePrince Race & Zollo, Inc., an investment
advisor registered under the Investment Advisors Act of 1940, provides
investment advisory services on a discretionary basis to institutional
clients, most of whom are pension and profit sharing plans and trusts.
(3) As reported in a Form 13F for the quarter ended June 30, 2006, filed by
Dimensional Fund Advisors Inc. ("Dimensional"), which is an investment
advisor registered under the Investment Advisors Act of 1940. Per a
Schedule 13G filing dated December 31, 2004, Dimensional furnishes
investment advice to four investment companies registered under the
Investment Advisors Act of 1940, and serves as investment manager to
certain other commingled group trusts and separate accounts. Per the Form
13F, in its role as investment advisor or manager, Dimensional possesses
investment power over 540,733 shares and voting authority over 530,333
shares that are owned by such investment companies, commingled group trusts
and separate accounts and Dimensional disclaims beneficial ownership of
such securities.
(4) As reported in a Form 13F for the quarter ended June 30, 2006, filed by
Inverness Counsel, Inc. ("Inverness"), which is an investment advisor
registered under the Investment Advisors Act of 1940. According to a
Schedule 13D filing dated December 30, 1997, Inverness originally purchased
854,100 shares of Common Stock for and on behalf of clients of Inverness,
in the ordinary course of business for investment from the personal funds
of such clients. Per the Form 13F, (i) Inverness has the sole power to
dispose or to direct the disposition of such shares, (ii) Inverness does
not possess, nor does it share, the power to vote or to direct the vote of
any of such shares and (iii) various officers and directors of Inverness
own 35,950 shares, and such persons individually have the exclusive right
to dispose, or to direct the disposition of, or to vote, or to direct the
vote of, the shares owned by them.
(5) As reported in a Form 13F for the quarter ended March 31, 2006, filed by
Austin W. Marxe and David M. Greenhouse, officers of AWM Investment
Company, Inc., an institutional investment manager. Per the Form 13F, (i)
Marxe and Greenhouse share sole voting and investment power over 507,200
shares of Company Common Stock, (ii) Marxe and Greenhouse are managing
members of various funds owning the Company's Common Stock and (iii) the
principal business of each Fund is to invest in equity and equity-related
securities.
(6) Includes 435,690 shares of stock held by the Frequency Electronics, Inc.
ESOP Trust (the "Trust") for the Company's Employee Stock Ownership Plan,
all of which shares have been allocated to the individual accounts of
employees of the Company (including the Named Officers as defined on page
15); also includes 121,095 shares held by the Trust under the Company's
Stock Bonus Plan (converted by amendment to the Employee Stock Ownership
Plan as of January 1, 1990).
(7) Includes 198,000 shares issuable on the full exercise of the following
options granted to Mr. Bloch: 18,000 shares granted on August 31, 1998 at
an exercise price of $7.125 under the Senior ESOP, as that term is
hereinafter defined, and 180,000 shares granted on March 1, 2001 at an
exercise price of $13.49, per terms of Mr. Bloch's employment agreement.
(See the discussion on the Chief Executive Officer included in the
Compensation Committee Report below).
(8) Includes 3,000 shares issuable on the full exercise of options granted to
General Franklin on August 31, 1998 under the Senior ESOP, as that term is
hereinafter defined, at an exercise price of $7.125. (See the discussion of
the Senior ESOP included under Equity Compensation Plan Information,
below).
(9) Includes shares granted to the officers of the Company pursuant to a stock
purchase agreement in connection with the Company's Restricted Stock Plan:
Name Restricted
Stock
------------------------------ -----------------
Markus Hechler 7,500
------------------------------ -----------------
All Officers as a Group 22,500
(12 persons)
------------------------------ -----------------
(10) Includes the number of shares which, as at August 25, 2006, were deemed to
be beneficially owned by the persons named below, by way of their
respective rights to acquire beneficial ownership of such shares within 60
days through (i) the exercise of options; (ii) the automatic termination of
a trust, discretionary account, or similar arrangement; or (iii) by reason
of such person's having sole or shared voting powers over such shares. The
following table sets forth for each person named below the total number of
shares which may be so deemed to be beneficially owned by him and the
nature of such beneficial ownership:
Profit Sharing
Name Stock Bonus ESOP Shares Plan & Trust ISOP or NQSO
Plan Shares 401(k) Shares
(a) (b) (c)
------------------- -------------- -------------- ---------------- ------------
Martin B. Bloch 22,317 4,205 1,973 30,000
------------------- -------------- -------------- ---------------- ------------
Joseph P. Franklin -0- 4,031 50 20,000
------------------- -------------- -------------- ---------------- ------------
Markus Hechler 2,707 5,968 1,938 78,375
------------------- -------------- -------------- ---------------- ------------
Michel Gillard -0- -0- -0- 25,000
------------------- -------------- -------------- ---------------- ------------
Oleandro Mancini -0- -0- 1,562 38,875
------------------- -------------- -------------- ---------------- ------------
Steven Strang -0- -0- 931 8,125
------------------- -------------- -------------- ---------------- ------------
All Directors and
Officers as a Group 26,060 40,320 15,262 452,500
(16 persons)
------------------- -------------- -------------- ---------------- ------------
(a) Includes all shares allocated under the Company's Stock Bonus Plan
("Bonus Plan") to the respective accounts of the named persons,
ownership of which shares is fully vested in each such person. No
Bonus Plan shares are distributable to the respective vested owners
thereof until after their termination of employment with the Company.
As of January 1, 1990, the Bonus Plan was amended to an "Employee
Stock Ownership Plan" (see the discussion of the Employee Stock
Ownership Plan contained in the Compensation Committee Report, below;
see also footnote (b) to the table).
(b) Includes all shares allocated under the Company's Employee Stock
Ownership Plan ("ESOP") to the respective accounts of the named
persons, ownership of which shares was fully vested in each such
person as at April 30, 2006. ESOP shares are generally not
distributable to the respective vested owners thereof until after
their termination of employment with the Company. However, upon the
attainment of age 55 and completion of 10 years of service with the
Company, a participant may elect to transfer all or a portion of his
vested shares, or the cash value thereof, to a Directed Investment
Account. Upon the allocation of shares to an employee's ESOP account,
such employee has the right to direct the ESOP trustees in the
exercise of the voting rights of such shares (see the discussion of
the ESOP included below in the Compensation Committee Report).
(c) Includes all shares allocated under the Company's profit sharing plan
and trust under section 401(k) of the Internal Revenue Code of 1986.
This plan permits eligible employees, including officers, to defer a
portion of their income through voluntary contributions to the plan.
Under the provisions of the plan, the Company made discretionary
matching contributions of the Company's Common Stock. All participants
in the plan become fully vested in the Company contribution after six
years of employment. Messrs Bloch, Franklin, Hechler and McClelland
are fully vested in the shares attributable to their accounts. Mr.
Gillard, who is a citizen and resident of Belgium, is ineligible to
participate in the 401(k) plan.
(11) Includes shares issuable on the exercise of options granted to the
non-officer directors of the Company under the Independent Contractors
Stock Option Plan.
Name Exercisable Grant Exercise
Shares Date Price
-------------------- ------------- ------------------- -----------
Joel Girsky 30,000 June 29, 1998 $12.81
-------------------- ------------- ------------------- -----------
E. Donald Shapiro 30,000 June 29, 1998 $12.81
-------------------- ------------- ------------------- -----------
S. Robert Foley 30,000 March 12, 1999 $7.34
-------------------- ------------- ------------------- -----------
Richard Schwartz 7,500 December 10, 2004 $14.76
-------------------- ------------- ------------------- -----------
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and 10%
stockholders to file reports of ownership and reports of changes in ownership of
the Company's common stock and other equity securities with the SEC. Directors,
executive officers and 10% stockholders are required to furnish the Company with
copies of all Section 16(a) forms they file. Based on a review of the copies of
such reports furnished to it, the Company believes that during the fiscal year
ended April 30, 2006, the Company's directors, executive officers and 10%
stockholders complied with all Section 16(a) filing requirements applicable to
them.
CERTAIN INFORMATION AS TO COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During the past fiscal year, four meetings of the Board were held. Each
incumbent director attended all meetings of the Board, either in person or by
telephone. In addition, each incumbent director attended 75% or more of the
aggregate number of meetings of the Board committees on which he served during
the past fiscal year.
In addition to attendance at Board meetings, the Board of Directors
encourages, but does not require, all directors to attend annual meetings of the
Company's stockholders. All six members of the current Board of Directors
attended the Company's 2005 Annual Meeting of Stockholders.
Audit Committee
The Audit Committee consists of the Company's four independent directors,
Messrs. Foley, Girsky, Shapiro and Schwartz. Each of these directors is
independent in accordance with the independence standards for audit committee
membership set forth in Section 10A(m)(3) of the Exchange Act and as defined in
Rule 4350(d)(2)(A) of the listing standards of The NASDAQ Stock Market, upon
which the Company's Common Stock is listed and trades. The Board has determined
that each member of the Audit Committee is able to read and understand
fundamental financial statements. In addition, the Board has determined that
both E. Donald Shapiro, chairman of the Audit Committee, and Joel Girsky satisfy
the SEC's criteria as "audit committee financial experts."
The Audit Committee has procedures in place to receive, retain and handle
complaints received regarding accounting, internal controls or auditing matters
and to allow for the confidential and anonymous submission by anyone of concerns
regarding questionable accounting or auditing matters.
The purpose of the Audit Committee is to oversee the accounting and
financial reporting processes of the Company and the audits of the Company's
financial statements. The functions of the Audit Committee include, without
limitation, (i) responsibility for the appointment, compensation, retention and
oversight of the Company's independent auditors, (ii) review and pre-approval of
all audit and non-audit services provided to the Company by the independent
auditors, other than as may be allowed by applicable law, and (iii) review of
the annual audited and quarterly consolidated financial statements. The Amended
and Restated Charter of the Audit Committee, which describes all of the Audit
Committee's responsibilities, is posted on the Company's website at
http://www.frequencyelectronics.com.
The Audit Committee held five meetings during the last fiscal year. The
Audit Committee's report appears on page 14 of this Proxy Statement.
Compensation Committee
The Compensation Committee consists of the four independent directors,
Messrs. Foley, Girsky, Shapiro and Schwartz. The Compensation Committee
determines cash remuneration arrangements for the highest paid executives and
oversees the Company's stock option, bonus and other incentive compensation
plans.
The report of the Compensation Committee appears on pages 12 and 13 of this
proxy statement. The Compensation Committee held 2 meetings during fiscal year
2006.
DIRECTOR NOMINATIONS AND CORPORATE GOVERNANCE MATTERS
Director Nominations
Due to the relatively small size of its Board of Directors, the Company
does not have a formal nominating or corporate governance committee. New
director nominations, which are infrequent, and compliance with corporate
governance rules, are reviewed and approved by the independent directors. By
Board resolution, the Company has determined that if a new director is to be
nominated, the independent directors of the Company (currently Messrs. Foley,
Girsky, Shapiro and Schwartz) will conduct interviews of qualified candidates
and, as appropriate, will recommend selected individuals to the Board. The
independent directors consider director candidates based on criteria approved by
the Board, including such individuals' backgrounds, skills, expertise,
accessibility and availability to serve constructively and effectively on the
Board. The Company may retain a director search firm to assist it in identifying
qualified director nominees.
Director Candidates Proposed by Stockholders
The Company will consider recommendations for director candidates submitted
in good faith by stockholders of the Company. A stockholder recommending an
individual for consideration by the Board (and the independent directors) must
provide (i) evidence in accordance with Rule 14a-8 of the Exchange Act of
compliance with the stockholder eligibility requirements, (ii) the written
consent of the candidate(s) for nomination as a director, (iii) a resume or
other written statement of the qualifications of the candidate(s) for nomination
as a director and (iv) all information regarding the candidate(s) and the
stockholder that would be required to be disclosed in a proxy statement filed
with the SEC if the candidate(s) were nominated for election to the Board,
including, without limitation, name, age, business and residence address and
principal occupation or employment during the past five years. Stockholders
should send the required information to the Company at 55 Charles Lindbergh
Boulevard, Mitchel Field, New York 11553, Attention: Corporate Secretary.
In order for a recommendation to be considered by the Company for the 2007
Annual Meeting of Stockholders, the Company's Corporate Secretary must receive
the recommendation no later than 5:00 p.m. local time on April 30, 2007. Such
recommendations must be sent via registered, certified or express mail (or other
means that allows the stockholder to determine when the recommendation was
received by the Company). The Company's Corporate Secretary will send properly
submitted stockholder recommendations to the independent directors for
consideration at a future meeting. Individuals recommended by stockholders in
accordance with these procedures will receive the same consideration as other
individuals evaluated by the independent directors.
Communications with Directors
Stockholders and other interested parties may communicate directly with any
director, including any non-management member of the Board, by writing to the
attention of such individual at the following address: Frequency Electronics,
Inc., 55 Charles Lindbergh Boulevard, Mitchel Field, New York 11553, Attention:
Corporate Secretary. The Company's Secretary will distribute any stockholder
communications received to the director(s) to whom the letter is addressed or to
all of the directors if addressed to the entire Board.
Communications that are intended for the non-management directors generally
should be marked "Personal and Confidential" and sent to the attention of the
Chairman of the Audit Committee. The Chairman will distribute any communications
received to the non-management member(s) to whom the communication is addressed.
Executive Sessions of Independent Directors
The independent directors will regularly meet without any management
directors or employees present. Such executive sessions will be held at least
annually and as often as necessary to fulfill the independent directors'
responsibilities.
Code of Ethics
All directors, officers and employees of the Company must act ethically and
in accordance with the Company's Code of Ethics (the "Code of Ethics"). The Code
of Ethics satisfies the definition of "code of ethics" under the rules and
regulations of the SEC and is available on the Company's website at
http://www.frequencyelectronics.com. The Code of Ethics is also available in
print to anyone who requests it by writing to the Company at the following
address: Frequency Electronics, Inc., 55 Charles Lindbergh Boulevard, Mitchel
Field, New York 11553, Attention: Ethics Officer. Annually, the Company's
directors review the Code of Ethics and the report of the Company's Ethics
Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As described below, members of the Compensation Committee are Joel Girsky,
Chairman, S. Robert Foley, E. Donald Shapiro and Richard Schwartz. No
interlocking relationship exists between the Company's Board of Directors or
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.
EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
Overall Policy
The members of the Compensation Committee include Messrs. Joel Girsky, E.
Donald Shapiro, S. Robert Foley and Richard Schwartz. The Compensation Committee
reviews and, with any changes it believes appropriate, approves the Company's
executive compensation.
The general goals of the Compensation Committee are to: (i) attract,
motivate, and retain effective and highly qualified executives; (ii) strengthen
the common interests of management and stockholders through executive stock
ownership; (iii) promote the Company's long- and short-term strategic goals and
human resource strategies; (iv) recognize and award individual contributions to
the Company's performance; and (v) reflect compensation practices of comparable
companies.
To achieve the foregoing goals, the Compensation Committee has structured a
comprehensive compensation program aimed at: (i) compensating executive officers
on an annual basis with a cash salary at a level sufficient to retain and
motivate them and to recognize and award individual merit; (ii) linking a
portion of executive compensation to long-term appreciation of the Company's
stock price by encouraging executive ownership of the Company's stock through
awards of shares of the Company's stock and grants of options to purchase
Company stock; and (iii) providing incentives to increase shareholder value by
rewarding contributions to the Company's performance through cash bonuses keyed
to operating profit levels. These policies are implemented through a reward
system which includes base salary and long- and short-term incentive
compensation opportunities as described below.
Base Salaries
The Compensation Committee annually reviews the base salaries of the CEO
and all other executive officers of the Company. The Compensation Committee
believes that the Company's executive officers, including those shown in the
Summary Compensation Table on page 15 (the "Named Officers") have been largely
responsible for the Company's past successes and for achieving the production
and engineering improvements that have maintained the Company's position at the
forefront of technical innovation. A base salary for each executive is
determined on the basis of such factors as: levels of responsibility; experience
and expertise; evaluations of individual performance; contributions to the
overall performance of the Company; time and experience with the Company;
internal compensation equity; and the external pay practices for comparable
companies.
Short-Term Incentives
The Company maintains short-term incentive bonus programs for certain
employees which are based on operating profits of the individual subsidiaries to
which the employees are assigned. The Company's employment agreement with its
Chief Executive Officer includes a bonus formula based on consolidated pre-tax
profits. These plans are designed to create incentives for superior performance
and to allow the Company's executive officers to share in the success of the
Company by rewarding the contributions of individual officers. Focused on
short-term or annual business results, these plans enable the Company to award
designated executives with annual cash bonuses based on their contributions to
the profits of the Company.
Long-Term Incentives
As part of its comprehensive compensation program, the Company stresses
long-term incentives through awards of shares of its common stock under the
Employee Stock Ownership Plan ("ESOP") and through the grant of options to
purchase common stock through various employee stock award plans. Grants and
awards are aimed at attracting new personnel, recognizing and rewarding current
executive officers for special individual accomplishments, and retaining
high-performing officers and key employees by linking financial benefit to the
performance of the Company (as reflected in the market price of the Company's
common stock) and to continued employment with the Company. The number of shares
granted to executive officers under the Company's ESOP is determined on a
pro-rata basis. Grants of stock options and other equity awards are generally
determined on an individual-by-individual basis. The factors considered are the
individual's performance rating and potential for contributing to the Company's
future growth, the number of stock options and awards previously granted to the
individual and the Company's financial and operational performance.
Supplemental Separation Benefits
The Company has an agreement with certain executive officers and certain
key employees to provide supplemental separation benefits. Under the agreement,
in the event of a change in control or ownership of part or all of the Company
which gives rise to discharge of any officer or employee without cause, then
such officer or employee will receive supplemental severance pay equal to one
and one-half times the employee's average base salary plus cash bonus from the
previous five calendar years prior to the change of control if such discharge
occurs in the first year after the change of control. If discharge occurs more
than one year but less than two years after the change of control, then the
employee will receive two-thirds of the five-year average of base salary and
bonus.
Chief Executive Officer
Pursuant to his employment agreement, Mr. Bloch's base annual salary is
$400,000. Beginning in fiscal year 2005, Mr. Bloch received additional
compensation of $42,000 in the form of financial planning advice and
Company-paid premiums for life insurance coverage, the beneficiaries of which
are Mr. Bloch's heirs. Mr. Bloch's employment agreement provides a fixed annual
bonus of 6% of the pre-tax profit of the Company with a cap on the pre-tax
profit at $20,000,000, as well as separation benefits in the event of a change
in control or ownership of part or all of the Company, continuation of
disability, medical and life insurance, the cost of an annual physical
examination and a new automobile every three years. Mr. Bloch was awarded stock
options to purchase an aggregate of 228,000 shares of the Company's common
stock. The grants were made at the fair market value on August 31, 1998 (18,000
shares at $7.125), July 7, 1999 (30,000 shares at $7.625) and March 1, 2001
(180,000 shares at $13.49). The options are exercisable for a period of ten (10)
years from the date of grant.
In determining the compensation package for Mr. Bloch, the Compensation
Committee took into account the compensation packages for senior officers at
companies of comparable size and complexity, both public and private, as well as
its assessment of Mr. Bloch's individual performance, his contributions to the
Company's past growth and accomplishments as well as contributions which it is
anticipated will be made by Mr. Bloch in the future. In this regard, the
Compensation Committee recognized Mr. Bloch's untiring efforts in developing new
applications and markets based on the Company's technology, including the
successful integration of the technologies and capabilities of recently acquired
subsidiaries. The Compensation Committee believes these efforts position the
Company to compete more effectively on U.S. government programs and in
world-wide commercial markets. The Compensation Committee believes that the
investment in new products and acquisition of new technologies and manufacturing
facilities will result in significant growth of revenues and profits in future
periods.
Consistent with the anticipation of future growth in revenues and
profitability, the Compensation Committee is reviewing the current incentive
compensation programs for the executive officers of the Company and its
subsidiaries. This review is being undertaken with a view towards implementing
enhancements or changes, as appropriate, to incentive compensation programs in
fiscal year 2007.
Joel Girsky, Chairman, Compensation Committee
S. Robert Foley
E. Donald Shapiro
Richard Schwartz
Members of the Compensation Committee
REPORT OF THE AUDIT COMMITTEE
The members of the Audit Committee have been appointed by the Board of
Directors. The Audit Committee is comprised of four non-employee directors, each
of whom satisfies the independence standards for audit committee membership set
forth in Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended,
and the independence requirements of the NASDAQ Stock Market. The Audit
Committee is governed by a charter that has been approved and adopted by the
Board of Directors and which is reviewed and reassessed annually by the Audit
Committee.
The following Audit Committee Report does not constitute soliciting
material and shall not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent the Company
specifically incorporates this Audit Committee Report by reference therein.
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process including the systems of
internals controls. In fulfilling its oversight responsibilities, the Audit
Committee reviewed with management the audited financial statements for the
fiscal year ended April 30, 2006, including a discussion of the quality, not
just the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of disclosures in the financial
statements.
The Audit Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be discussed
with the Audit Committee under generally accepted auditing standards. In
addition, management and the independent auditors have represented to the Audit
Committee that the financial statements were prepared in accordance with
generally accepted accounting principles.
The Audit Committee has received from and discussed with the independent
auditors their written disclosure and letter regarding their independence from
the Company as required by Independence Standards Board Standard No. 1. The
Audit Committee has also discussed with the independent auditors any matters
required to be discussed by Statement on Auditing Standards No. 61.
The Audit Committee discussed with the Company's independent auditors the
overall scope and plans for their audit. The Audit Committee met with the
independent auditors, with and without management present, to discuss the
results of their examination, their evaluation of the Company's internal
controls, and the overall quality of the Company's financial reporting. The
Audit Committee held five meetings during fiscal year 2006.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Annual Report on Form
10-K for the fiscal year ended April 30, 2006 for filing with the Securities and
Exchange Commission.
E. Donald Shapiro, Chairman, Audit Committee
S. Robert Foley
Joel Girsky
Richard Schwartz
Members of the Audit Committee
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid or accrued during each of the Company's last three fiscal years to the
Company's Chief Executive Officer and each of the Company's four other most
highly compensated executive officers (collectively, the "Named Officers") based
on salary and bonus earned during fiscal 2006.
Annual Compensation Long-Term
Compensation Awards
-------------------------------------- ---------------------------
Other $Value of Securities
Name and Principal Position Annual Restricted Underlying
Year Salary Bonus Compensation Stock Awards Options
(3) (4)
- ------------------------------ ------- ----------- ------------ --------------- -------------- ------------
Martin B. Bloch 2006 $415,385 $325,000 $69,547 $3,000 -0-
President, Chief ------- ----------- ------------ --------------- -------------- ------------
Executive Officer 2005 415,385 345,000 61,718 3,000 -0-
------- ----------- ------------ --------------- -------------- ------------
2004 423,077 40,000 27,989 3,000 -0-
===========================================================================================================
Markus Hechler 2006 201,346 30,000 23,376 3,000 -0-
Executive Vice ------- ----------- ------------ --------------- -------------- ------------
President 2005 190,962 18,000 21,560 3,000 7,500(5)
------- ----------- ------------ --------------- -------------- ------------
2004 190,385 36,000 18,872 3,000 8,000(5)
===========================================================================================================
Michel Gillard (1) 2006 182,745 -0- 24,366 -0- -0-
President, Gillam-FEI ------- ----------- ------------ --------------- -------------- ------------
2005 226,102 -0- 38,431 -0- -0-
------- ----------- ------------ --------------- -------------- ------------
2004 211,092 -0- 35,880 -0- -0-
===========================================================================================================
Oleandro Mancini 2006 151,731 30,000 21,074 3,000 -0-
Vice President, ------- ----------- ------------ --------------- -------------- ------------
Business Development 2005 136,539 18,000 22,186 3,000 17,500(5)
------- ----------- ------------ --------------- -------------- ------------
2004 133,461 35,000 21,480 3,000 10,000(5)
===========================================================================================================
Steven Strang (2) 2006 147,575 43,296 7,027 3,000 -0-
President, FEI-Zyfer ------- ----------- ------------ --------------- -------------- ------------
===========================================================================================================
Notes:
(1) Effective March 31, 2006, Mr. Gillard retired as an officer of the Company.
His compensation in fiscal year 2006 reflects his changing role with the
Company. Mr. Gillard's euro-denominated base compensation was the same in
both fiscal years 2005 and 2004 as presented above. The dollar-denominated
fluctuations are due solely to the effect of changes in the rate of
exchange between the euro and the dollar.
(2) Mr. Strang was promoted to the position of President of FEI-Zyfer, Inc.
effective May 1, 2005.
(3) The amounts shown in this column constitute (i) automobile allowance; (ii)
insurance premiums to provide term life insurance benefits (available to
all employees); (iii) the cost of medical insurance (available to all
employees); and (iv) the costs of medical reimbursements available to
officers. In the case of Mr. Bloch's compensation in fiscal years 2006 and
2005 the amounts also include $42,000 for financial planning advice and the
payment of premiums for life insurance policies, the beneficiaries of which
are Mr. Bloch's heirs.
(4) Represents the dollar value, as at the date of contribution, of shares of
Common Stock of the Company distributed under the Company's Profit Sharing
Plan and Trust under section 401(k) of the Internal Revenue Code
("401(k)"). In fiscal years 2006, 2005 and 2004, the Company made matching
contributions of Company Common Stock to the accounts of Named Officers in
amounts which varied from 244 to 280 shares in fiscal year 2006, from 242
to 262 in fiscal year 2005 and from 189 to 270 shares in fiscal year 2004.
The average market value of the awarded shares at the time of allocation
was $13.15 in fiscal year 2006, $13.13 in fiscal year 2005 and $12.48 in
fiscal year 2004. Company matching contributions to the 401(k) plan are
made in proportion to the cash contributions of individual employees to the
plan. Mr. Gillard, who is not a resident of the United States, does not
participate in the 401(k) plan.
(5) Represents shares awarded under the Company's 2001 Incentive Stock Option
Plan. The exercise prices of the awarded options are at the fair market
value of the Company's Common Stock on the date of grant. The options are
exercisable in increments of 25% annually (and cumulatively) beginning one
year after date of grant.
Stock Options
Options Granted:
During the fiscal year ended April 30, 2006, the Company did not grant
options to acquire common stock to any of the Named Officers under the Company's
stock option plans.
Option Exercises and Year-end Values:
The following table sets forth certain information with respect to options
exercised during fiscal 2006 by each Named Officer and option values as of April
30, 2006.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2006
AND FISCAL YEAR-END OPTION VALUES
No. of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options at Fiscal Options at Fiscal
Acquired Year-End Year-End ($)
on Value Exercisable (E)/ Exercisable (E)/
Name Exercise Realized ($) Unexercisable (U) Unexercisable (U)
---- -------- ------------ ----------------- -----------------
Martin B. Bloch -0- $ -0- 228,000 (E) $372,600 (E)
0 (U) $0 (U)
Markus Hechler -0- -0- 74,375 (E) $332,433 (E)
11,625 (U) $31,570 (U)
Michel Gillard -0- -0- 25,000 (E) $0 (E)
0 (U) $0 (U)
Oleandro Mancini -0- -0- 34,625 (E) $93,434 (E)
19,875 (U) $53,761 (U)
Steven Strang -0- -0- 5,625 (E) $27,600 (E)
11,875 (U) $33,900 (U)
Equity Compensation Plan Information
Securities Authorized for Issuance under Equity Compensation Plans:
The following table sets forth as of April 30, 2006, the number of shares
of Company Common Stock to be issued upon exercise of outstanding stock option
grants and the number of shares available for future issuance under such plans:
Plan Category Number of Weighted-average Number of securities
securities to exercise price remaining available
(see Notes below) be issued upon of outstanding for future issuance
exercise of options, under equity
outstanding warrants and compensation plans
options, rights (excluding securities
warrants and reflected in column (a))
rights
(a) (b) (c)
- ------------------------- ------------------ ------------------- -------------------------
Equity compensation
plans approved by
security holders 483,700 $9.61 399,000
- ------------------------- ------------------ ------------------- -------------------------
Equity compensation
plans not approved by
security holders 813,237 $12.83 -
- ------------------------- ------------------ ------------------- -------------------------
Total 1,296,937 $11.58 399,000
- ------------------------- ------------------ ------------------- -------------------------
Notes:
Equity compensation plans approved by security holders consist of:
1. 2005 Stock Award Plan- Under the terms of this plan, adopted in fiscal year
2006 and approved by shareholders on September 29, 2005, stock options,
stock appreciation rights, restricted stock and other equity interests may
be granted to employees, officers and directors of the Company as well as
consultants and independent contractors. The exercise price is generally at
least equal to the fair market value of the Company's Common Stock on the
date of grant. Equity awards generally are exercisable over a four-year
period beginning one year after date of grant and expire ten years after
the grant date. After fiscal year 2015, no additional shares may be issued
from this plan.
2. 2001 Incentive Stock Option Plan- Under the terms of this plan, adopted in
fiscal year 2002 and approved by shareholders on October 3, 2001, stock
options may be granted to employees, officers and directors of the Company
at a price at least equal to the fair market of the Company's Common Stock
on the date of grant. Options generally are exercisable over a four-year
period beginning one year after date of grant and expire ten years after
the grant date. With the adoption of the 2005 Stock Award Plan, no
additional shares may be issued from this plan.
3. Senior Executive Stock Option Plan (Senior ESOP)- Under the terms of this
plan, adopted in fiscal year 1989 and approved by shareholders on October
13, 1988, stock options may be granted to the Company's President, Chairman
of the Board and the president of any subsidiary with gross sales in excess
of $30 million. Stock options may be granted at a price at least equal to
the fair market value of the Company's Common Stock on the date of grant.
Vesting and the terms of exercise of the stock options are at the
discretion of the Company's Board of Directors. No additional options were
granted under the plan after December 14, 1997 and no option awards may be
exercised after August 2008.
4. Restricted Stock Plan- Under the terms of this plan, adopted in fiscal year
1990 and approved by shareholders on October 12, 1989, the Company may sell
its Common Stock to certain key management employees, including officers
and directors, at a purchase price as determined by the Board of Directors
but not less than the par value of the Common Stock. Any shares acquired
under the plan may not be sold or transferred, except in the event of a
change in control as defined. No additional restricted stock may be sold
under the plan after December 31, 1998.
Equity compensation plans not approved by security holders consist of:
i- Independent Contractor Stock Option Plan- Under the terms of this plan,
adopted in fiscal year 1998, options to acquire shares of the Company's
Common Stock may be granted to individuals who provide services to the
Company but who are not employees. The option price, number of shares,
timing and duration of option grants is at the discretion of the
Independent Contractor Stock Option Committee. In recent grants, the option
price was equal to the then fair market value of the Company's Common
Stock, a portion of each grant was immediately exercisable and the options
expire in ten years from date of grant. With the adoption of the 2005 Stock
Award Plan, no additional shares may be issued from this plan.
ii- 1993 Non-Statutory Stock Option Plan- Under the terms of this plan, adopted
in fiscal year 1993, stock options may be granted to employees, officers
and directors of the Company at a price at least equal to the fair market
of the Company's Common Stock on the date of grant. Options generally are
exercisable over a four-year period beginning one year after date of grant
and expire ten years after the grant date. After fiscal year 2003, no
additional shares were issuable from this plan.
iii- President's Employment Contract- Under the terms of an employment contract,
entered into in fiscal year 2001, Mr. Bloch, the Company's President, CEO
and Chief Scientist, was granted an option to acquire 180,000 shares of the
Company's Common Stock at the then fair market value of $13.49. The option
became exercisable 25% per year in each of the four years after the date of
grant and expires in ten years from date of grant.
Long-term Incentive Plans
The Company does not maintain any compensation plans for its executive
officers or directors or for any of its other employees which provide
compensation intended to serve as incentive for performance to occur over a
period longer than one fiscal year other than the restricted stock and stock
award plans discussed in the Compensation Committee Report, above. Awards under
these plans are shown in the Summary Compensation Table, above.
Pension Benefits
The Company has no defined benefit or actuarial retirement plans in
effect. It has entered into certain Executive Incentive Compensation ("EIC")
agreements with key employees (including some officers) providing for the
payment of benefits upon retirement or death or upon the termination of
employment not for cause. The Company pays compensation benefits out of its
working capital but has also purchased whole or term life insurance (of which it
is the sole beneficiary) on the lives of certain of the participants to cover
the optional lump sum obligations under the EIC agreements upon the death of the
participant. The annual premiums paid during fiscal year 2006 were less than the
increase in cash surrender value of the whole life insurance policies. The
annual benefit provided under the program in fiscal year 2006 upon retirement at
age 65 or death is as follows: Martin B. Bloch- $170,000, Markus Hechler-
$75,000, Oleandro Mancini- $35,000 and Steven Strang- $10,000. The benefit
described above is payable for ten years or the life of the participant,
whichever is longer. Two years after retirement or early retirement, the
participants can elect to receive the benefit, less benefits received during the
two-year period, in a lump sum under certain conditions. Upon voluntary
termination of employment or discharge not for cause, the participant would be
entitled to a lump sum payment, the amount of which varies based on the year in
which termination occurs and the nature of the termination as set forth in the
individual's EIC agreement. In conjunction with the program, the participants
are required to make certain covenants with the Company relating to, among other
things, nondisclosure of confidential information, noncompetition with the
Company and the providing of consulting services subsequent to retirement.
Performance Graph
The following graph compares the cumulative total shareholder return on the
Common Stock of the Company with the cumulative total return of the companies
listed in the Standards & Poors' Small Cap 600 Stock Index (the "S&P 600 Small
Cap Index") and an industry peer group index (the "Peer Group Index"). The graph
assumes that $100 was invested on May 1, 2001 in each of the Common Stock of the
Company, the stock of the companies comprising the S&P 600 Small Cap Index and
the common stock of the companies comprising the Peer Group Index, including the
reinvestment of dividends, through April 30, 2006. The Peer Group Index consists
of Aeroflex Inc., Anaren Inc., Ball Corp., Comtech Telecommunications Corp., EDO
Corp., Iteris Holdings, Inc., Merrimac Industries, Inc., Scientific Atlanta,
Inc., Skyworks Solutions, Inc., Symmetricom Inc. and Trimble Navigation, Ltd.
Cumulative Total Shareholder Return for
Five-year Period Ended April 30, 2006
[THE FOLLOWING TABLE REPRESENS A LINE GRAPH IN THE SOURCE DOCUMENT]
Performance Graph Data Table:
2001 2002 2003 2004 2005 2006
- --------------------------------------------------------------------------------
Frequency Electronics $100.00 $ 84.22 $ 68.33 $ 93.54 $ 80.29 $ 98.48
- --------------------------------------------------------------------------------
S&P 600 Small Cap 100.00 116.54 92.13 128.93 142.37 187.06
- --------------------------------------------------------------------------------
Peer Group 100.00 58.53 47.68 73.61 76.43 95.04
- --------------------------------------------------------------------------------
Employment Contracts and Change-In-Control-Arrangements
None of the Named Officers are employed by the Company pursuant to
employment agreements, other than Mr. Bloch as described in the Compensation
Committee Report above. As described in the Compensation Committee Report
beginning on page 12, the Company has provided supplemental separation benefits
for certain executive officers, including Mr. Bloch, Mr. Hechler, and Mr.
Mancini, in the event of a change in control or ownership of part or all of the
Company. Such benefits will be provided only if an officer is discharged without
cause and is not offered the opportunity to be hired by the new or successor
management or company within 30 days at no less than the base salary earned
before discharge. The Company does not have any other material compensatory
plans or arrangements with its employees with respect to any resignation,
retirement or other termination of such persons employed with the Company
resulting from, or in any way connected with, a change-in-control of the
Company.
ANNUAL REPORT
A copy of the Company's Annual Report on Form 10-K, including the financial
statements and the financial statement schedule thereto, for the fiscal year
ended April 30, 2006, is being mailed to stockholders concurrently with the
mailing of this Proxy Statement. For a charge of $50, the Company agrees to
provide a copy of the exhibits to the Form 10-K to any stockholders who request
such a copy.
By Order of the Board of Directors,
/s/ Harry Newman
----------------
HARRY NEWMAN
Secretary
Dated: August 25, 2006